Bajaj Auto Limited Small Is Better

Introduction
Bajaj Auto limited was established in 1945 as a trading company . Obtained production license from government of India in 1959. Indias largest two wheeler manufacturing company . Worlds third largest two wheeler manufacturing company. Staff strength 17,213 in 2000.

The two wheeler industry grew by 11.6 % from 5.05millions to 5.64 millions.

5.7

5.6
5.5 5.4 5.3 5.2 5.1 5

4.9
4.8 4.7

2002-2003

2003-2004

Due to global competition ,Bajajs market share declined from 49.3% in 1994 to 38.9% in 1999.
60.00% 50.00%

40.00%
30.00% 20.00% 10.00% 0.00%

1994

1999

Identification of problem and Remedy

Realized smaller is better .

Cut down the strength of staffs and workers from 17,213 to 13,819. Offered four VRS schemes for its staffs and two VRS for its worker. Compacted its employee strength by 9.384(from 21.373 in 1997 to 11.531 in 2004)

Result
Reduction of Rs 70.6 crore per annum in its wage bill. Improved its productivity (output/employee/year) from 67.7 in 1997 to 101 in 2002 and then to 132 in 2004.

Increased output /employee/year by almost 50% in 7 years.

Focused on upgrading current products, developing new scooters. Cost reduction mainly on entry level segments.

Impact
Sales growth increase to 55.4% in 2002 as compared to market growth of 40 % during the previous year. Can offset its high raw materials cost due to increased productivity of its employees. Also reduced the labor cost as % of net sales from 5.7% to 5%. Bajaj Auto has a work force of 13000 employees with a network of 422 dealers and over 1200 authorized service centers.

Analysis
Short Run and Long Run The "law of diminishing returns" states that adding additional amounts of labor to a fixed amount of capital will eventually reduce labors marginal product. Unless all inputs are perfectly and infinitely substitutable, as we increase the amount of one input, while keeping other inputs constant, at some point the productive effectiveness of that input starts to decline.

Q
32 26 20 14 8 2

Graphing a Production Function

A production function is the relationship between then inputs and the outputs

TP

1 Increasing marginal productivity

3 4 5 6 Diminishing marginal productivity

8 9 10 Diminishing Absolute productivity

Number of workers

12-9

Law of Diminishing Marginal Productivity

no of worker s Total Output Marginal Product Average Product Law of diminishing marginal productivity states as more of a variable input is added to an existing fixed input, after some point the additional output from the additional input will fall. Increasing marginal productivity Diminishing marginal productivity Diminishing Absolute productivity
12-10

0 1

0 4

4 6

--4

2 3 4 5 6 7 8 9 10

10 17 23 28 31 32 32 30 25

7
6 5

3
1 0

-2
-5

5 5.7 5.8 5.6 5.2 4.6 4.0 3.3 2.5

Graphing Marginal and Average Productivity

Marginal Eventually Then marginal productivity marginal productivity productivity first increases isdeclines negative

6
4 2

AP
1 2 3 4 5 6 7 8 9 10 Number of workers

0
-2 -4

MP -6 Diminishing Diminishing Increasing marginal productivity marginal productivity Absolute productivity

12-11

Thank You.